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Inventory control questions… help plz…

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Inventory control questions… help plz…

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by michael.
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  • March 27, 2015 at 8:50 pm #239261
    Jonathan
    Member
    • Topics: 2
    • Replies: 7
    • ☆

    A company purchases 5,000 units per quarter at an even rate throughout the year. Each order placed with the supplier incurs a delivery charge of £20. The annual cost of holding one unit in inventory is £5.

    What is the minimum total of the inventory costs (order costs plus holding costs) per year?

    The answer should be £2000 but I cannot get it

    Thank you for your help

    March 30, 2015 at 6:59 pm #239588
    michael
    Member
    • Topics: 1
    • Replies: 12
    • ☆

    you need to use EOQ formula to find out optimal order amount:
    EOQ= [2*20*5000*4/5]*(0,5)=400 units per order.
    number of orders = 5000*4/400=50
    average inventory would be 400/2=200 units.
    re-order costs in this case amount to 50*20=1000$.
    holding costs are 200*5=1000$
    total min inv costs are 1000+1000=2000$.

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